Every industry has been affected by the Covid19 pandemic, either directly or indirectly. It seems no one is immune (no pun intended).
We’ve seen mandated business closures, major supply chain disruptions, product shortages, and exhausted healthcare workers.
Short on time? Click here to see some ranges of ERC awards being granted by the IRS
Unfortunately, many businesses, particularly smaller businesses, were ultimately crippled. Forced to reduce their hours of operation, develop on-the-fly work-from-home policies, offer fewer products or services, and ultimately lay off or terminate valuable employees. Some businesses were forced to close their doors but still managed to continue paying their employees, despite a significant decline in revenue.
Others may have been able to keep the doors open through the turbulence, but were still impacted financially due to employees being off sick or taking care of affected family members.
Fortunately, these small employers have been offered some relief along the way.
And how do you spell relief in business during an unprecedented pandemic?
M O N E Y 💰💰
Because of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which was passed in March 2020, there were two (or three, depending on eligibility) rounds of Paycheck Protection Program Loans (PPP) issued to help businesses weather the unforeseen pandemic pandemonium.
Through three disbursement phases, over $800 billion in PPP loan funds were issued to business owners. Most loans were under $50,000 and were issued to businesses that employed ten or fewer employees during the applicable tax years. Two years later, as the PPP dust has settled, 94% of those loans have been forgiven, with around $28 billion still outstanding.
In addition to the PPP Loans, 2020 also made the Employee Retention Credit (ERC) available to small and mid-sized businesses. The ERC intended to credit this population of business owners for retaining employees through the economic twists and turns of the pandemic.
Based on the qualifying criteria, the 2020 ERC allowed businesses with less than 500 employees to be refunded 50% of the total qualified wages they paid to part-time and full-time employees from March 13, 2020, through the end of the calendar year. This refundable payroll tax credit allows for a refund of up to $5,000 per employee these businesses were able to retain during the 2020 tax year.
As the economy continued down a path of instability, the ERC stimulus program was extended through June 30, 2021, with some qualification modifications and an increase in the potential refund amount. In this round, eligible employers could receive 70% of their total qualified wages paid out, up to $7000 per employee (vs 50% in 2020). Business owners could also claim this refundable tax credit per quarter in Q1 and Q2, for a maximum refund of $14,000 per employee in 2021. Businesses classified as a “Recovery Startup Business” were also eligible for credits in Q3 and Q4.
The most shocking and unfortunate part of all this “free money” from the Federal Government? Only 8% of small or mid-sized business owners actually applied for the credit in 2020, and a mere 10% in 2021.
One reason for the lack of engagement with the ERC could be the seemingly mind-numbing calculation process. Capturing the benefits of this stimulus was meant to be a lifeline to small businesses struggling to stay above water. But if you’re not a tax expert, the process can be somewhat painstaking, so it’s easy to understand why so few employers filed.
The great news is that business owners can still retroactively snag these stimis!
Yes, this means YOU!
Whether you missed the window to file, felt completely overwhelmed by the process and opted to forgo the paperwork, or simply didn’t know it was even available to you, all is not lost. This year affords yet one more opportunity to claim your ERC refunds!
Tip: Take this 60 second quiz to see if you prequalify for the ERTC today!
To be clear, we’re not tax experts or CPAs. But we do understand how difficult it can be to navigate the ERC process and avoid scams. There are a lot of details related to health insurance costs, Medicare taxes, partial suspension of business vs full suspension, social security taxes, and more. To help just a little, we’ve done our best in this article to remove as much pain and confusion as possible.
Below, we’ll guide you through the Employee Retention Tax Credit so you can grab these benefits in 2023, before they’re gone for good.
Why is it important to calculate your Employee Retention Credit?
Never leave money on the table, especially when it comes to taxes. You’re super diligent in claiming every deduction you can, right? Well, you also want to make sure you’re taking advantage of every credit available to you, and this one may have an extra nice payout. Plus, the fact that you can potentially claim the credit for the two prior years is like handing you a free pass for you to get YOUR money back.
Tip: Take this 60 second quiz to see if you prequalify for the ERTC today!
The benefits of calculating your employee retention credit include:
➤ A refund for employee wages paid in 2020 – claim your refund credit of up to $5000 per employee (only applicable in 2020 if you did not receive PPP assistance, your PPP loan was forgiven, or you repaid the funds by the deadline),
➤ A refund for employee wages paid in 2021 – with a bump to $7000 per employee per calendar quarter for the first half of 2021, that’s a nice chunk of change to just give to the Federal Government.
➤ Because of the Consolidated Appropriations Act (CAA), you can still claim the ERC in 2021 regardless of whether you received a PPP loan. The qualifying wages to be reported are slightly different but you can still potentially take advantage of both programs.
➤ None of the ERC refund money is a loan in any way, shape, or form, so there’s no expectation of forgiveness or repayment.
➤ It appears that tax returns being submitted promptly where there’s an ERC claimed, are being processed quickly to get the relief money disbursed to business owners faster.
How to calculate the employee retention credit in 2023?
Gather these business records to calculate the employee retention credit:
▶︎ Notice 2021-49 – this form comes directly from the IRS and breaks down the eligibility criteria for the ERC to ensure you meet the requirements
▶︎ Your 2019 tax returns for wage comparison
▶︎ Your 2020 tax returns if…
- you did not receive a PPP loan
- you repaid the loan funds before the deadline
- your loan was forgiven
▶︎ Your 2021 tax returns, even if you did receive a PPP loan
▶︎ Form 941 – this form calculates your eligible quarterly employee wages and qualified health plan expenses to determine your refundable credit amount
Once you have docs, here is how to calculate the Employee Retention…
❒ Credit from the IRS
1) Determine how many employees you had on staff in 2020 and 2021. This should include part-time and full-time employees who continued to receive a paycheck each calendar year. If you had zero employees, you don’t qualify for the ERC, however, you may still be eligible for paid leave credits.
2) Identify whether your business experienced any periods of partial or full suspension during the applicable quarters of 2020 and 2021. These closures would have been mandated by an authority such as a governmental order or other directive, as defined in the qualifying criteria.
3) Here comes the math. The ERC calculation requires a quarterly comparison of your business revenue. For the 2020 refund, you must show gross receipts proving a significant decline in revenue of 50% or more, relative to the same quarter in 2019. In 2021, the revenue loss must be 20% or more as compared to the same quarter in 2020.
4) Calculate the employee wages you continued to pay during any of the above-referenced suspension periods. This calculation should include health insurance costs and salaries or hourly wages paid to all part-time and full-time employees during the eligible periods of both 2020 and 2021.
These are some ranges of ERC awards being granted by the IRS:
|# of Employees||ERC Award (Low)||ERC Award (High)|
*Important Note: This table serves as a broad estimate. This is not a guarantee. Every business is different. Speak to an ERC Expert to fully understand your qualification status and to estimate how much your award might be.
❒ See if you prequalify with ERC Assistant
It’s always a great idea to work with an experienced tax preparation service.
These firms can verify that your forms are completed correctly and filed promptly to help avoid delays when dealing with the government.
Think about heading to the DMV with no paperwork or the wrong documents. Everything takes 7-116 business days longer and you could still potentially be denied. To make extra sure you’re fully prepared, outsourcing this process to a professional organization may be a great choice for your first stop in this tax-filing journey.
What is ERC Assistant?
Think of them as your ERC-filing wingman. They’re the tax-savvy Goose to your possibly clueless Maverick.
The role of ERC Assistant is to ensure your business receives the maximum credit refund available to you. With just a quick quiz, this ERTC service will assess your business’s eligibility and provide you with some options for the best ERC firms for your situation. Those firms will then gather all your details, calculate all the numbers, and get everything filed with the IRS, correctly and on time. How’s that for “having your back?”
For more information or to see if you prequalify, visit the ERC Assistant website.
❒ What if you don’t qualify for the ERC refund?
If your business was fortunate enough not to have been detrimentally impacted by the pandemic, you might not qualify for the ERC stimulus. However, there are other tax relief programs such as Paid Leave Credits for Vaccines and the Paid Sick Leave Refundable Credit that you may be eligible for. For some examples of the types of companies that have qualified for the ERTC check out our guide to retention credit examples.
The American Rescue Plan Act (ARP), which offers home and community-based services, may also be a great resource for your business and was just recently expanded through March 31, 2025.
People Also Ask These Questions About Employee Retention Credit Calculation
Q: How is the retention tax credit calculated?
- A: The retention tax credit is calculated based on lost revenue, the number of employees retained each year, and whether the business was affected by mandated business closures. To calculate your employee retention tax credit, follow the steps in this article to see if you prequalify.
Q: Are there experienced professionals to help calculate my ERC?
- A: There are experienced professionals to help calculate your ERC, also known as ERC Assistants, who are well-versed in the CARES Act and its benefits for eligible employers.
Q: What documentation do I need to calculate employee retention credit?
- A: The documentation you need to calculate your employee retention credit is detailed above. Just scroll up a few paragraphs to the section titled “How to calculate the employee retention credit.”